September 19, 2024 - There was quite a scare in early August across asset classes, particularly on August 5^th when a weak jobs report sparked renewed fears of a recession.  Adding to the volatility was a massive carry trade unwind that was triggered by the BOJ’s rate increase.  In loan land, downward price pressure was initially exacerbated by more than $5 billion of outflows across Loan Mutual funds and ETFs, according to Morningstar Direct.  But the markets, including BSLs, rebounded rather quickly as traders turned their attention to dovish comments by the Fed. 

So much for a quiet August, and summer for that matter, in the secondary loan market.  LSTA loan trading volume increased 5% to a three-month high of $67.2 billion in August.  Better still, not only were volumes 24% higher than last August, the $67.2 billion in activity was a record high for the month.  In actuality, the same held true for last month’s all-time high reading for July.  Even though monthly volume figures in the mid-to-high $60 billion range are not a game changer (volumes averaged north of $72 billion during the three-month period ending May), we note the seasonal effect on summer trade activity and emphasize the record-breaking activity this summer. Year-to-date, trade activity is up more than 10% over the same period last year while the number of individual loans trading on a per-month basis has increased 6% in 2024, to an average of 1,566 loans.  In comparison, the Morningstar|LSTA Leveraged Loan Index is comprised of 1,346 loans.   

Back to the August trading market, where daily volumes averaged just north of $3 billion per day, after peaking at $6.2 billion during the height of the sell-off on August 5^th.  Larger, more liquid and high-quality names dominated trade activity in the early going as bid-ask spreads initially gapped out 25 basis points and bid levels dropped 50 basis points.  And while daily activity remained volatile as traders began to cast a wider net across the secondary, the broader market caught a bid rather quickly.  All told, average trade prices ended August in a 97-context – roughly in line with where they began the month.  Meanwhile, bid-ask spreads moved marginally wider into a high 50 basis point range.  That said, a bit of froth was removed from the secondary in August as the median trade price was lower by 30 basis points after two consecutive months at par value – noting that the last time the median price sat at 100 for consecutive months was during the record 26-month period ended October 2018.